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Private Residential Rental Market Report - UK 2016-2020 Analysis

Published: 27/05/2016 / Number of Pages: 99 / Price: £745.00

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Introduction and Overview

This is the first edition of AMA Research's report on the UK private residential rental (PRS), or build-to-rent market. The report should be of particular interest to construction companies, investors, material suppliers, housing associations, local authorities, developers, operators, investors and other key stakeholders operating in the PRS market. This market has grown rapidly over the last decade and prospects remain strong, driven by a reduced ability to purchase due to high house prices, supply shortages, planning constraints, deposit requirements etc.

Key content covered:

  • Market Overview - the PRS sector and 'Build-to-Rent' market in the UK, review of stock by type and age, demand, value and ownership as well as future growth prospects.
  • Market drivers - construction output, development pipeline, housing policy and government support, sources of funding, housing affordability etc.
  • Key market sectors - market mix - small scale PRS landlords, institutional investors, developers, housing associations and PBSAs.
  • Supply chain and key stakeholders - procurement routes, key investment vehicles, contractors/housebuilders, consultants, FM providers etc. in the private rented sector, and leading players in the 'Build-to-Rent' sector.

Key areas of insight include:

  • Regional analysis of the UK PRS - whilst the focus has been on London and the South East, there are also significant regional PRS markets developing in Manchester, Leeds, Liverpool, Birmingham and Bristol. Analysis of the UK/London PRS development pipelines.
  • Value and ownership of the UK PRS - growth of institutional and large corporate investors - expected to treble their investment in the sector over the next 5 years - also housing associations, LA's and student housing operators becoming more active.
  • Government support for PRS - Build-to-Rent Fund and availability of cheap finance through government backed bonds under the Private Rented Sector Guarantee Scheme.
  • Sources of PRS funding - Government-backed funds, pension funds, private equity, bank funding - Govt. support schemes.
  • Analysis of the 'Build-to-Rent' market - delivery of new build, large-scale, professionally-managed residential accommodation specifically for rent and increasingly financed by institutional investors.
  • PRS development pipelines of leading investors, developers, housing associations and PBSA operators in the market - growing and diverse range of activity - review of new and key players.
  • Future growth of the PRS - the market is expected to grow significantly by 2025 when around 7m households could be renting privately.

Some of the companies included:

APG, Berkeley Homes, Bouygues, Bovis Homes, Brookfield Multiplex, Caddick Developments, Carillion, Countryside Properties, Crest Nicholson, Criterion Capital, Delancey, Essential Living, Fizzy Living, Generate Land, Grainger, Greystar, Henry Construction, Hermes, Invesco, Keepmoat, Kier, Laing O'Rourke, Legal & General, Lend Lease, Linden Homes, M&G Real Estate, Moda Living, Mulbury, Qatari Diar, Skanska, Silver Arrow, Thames Valley Housing Association, Touchstone, Willmott Dixon.

Private Residential Rental Market in the UK

  • Overview of the PRS (Private Residential Sector) and 'Build-to-Rent' market in the UK.
  • Overall size of the PRS - rental demand and future growth - growth in stock 2014-2025.
  • Analysis of PRS stock by property type and age.
  • Regional Analysis of the PRS - UK residential rental market by region. Detailed analysis of the growing PRS markets in Manchester, Birmingham, Leeds, Liverpool and Bristol.
  • London PRS Market - levels of PRS in major boroughs.
  • Value and ownership of the UK and Regional PRS markets - key urban centres for PRS.
  • Construction output in the UK Residential Sector. Private residential construction and RMI output.
  • PRS Development Pipeline - Regional and London Pipelines (schemes under construction and in planning) - major cities, projects, players.

PRS - Key Issues & Market Drivers

  • Housing Supply - House-building targets, UK housing starts and completions.
  • Government Housing Policy - Housing and Planning Bill, 2015 Spending Review, 2016 Budget.
  • Overview of UK Housing Zones and their use in the PRS.
  • Housing Affordability - House prices and affordability, PRS rental growth vs. housing price growth, mortgage availability, impact of tax changes affecting buy-to-let mortgages. Planning Issues and Land Availability - changes to Permitted Development Rights, use of public sector land for PRS schemes.
  • Government Support for PRS - Build-to-Rent Fund, Private Rented Sector Housing Guarantee Scheme, Affordable Homes Guarantee Programme, Private Rented Sector Taskforce.
  • Sources of Funding in the PRS - Public and private sector sources of finance including Government-backed funds, pension funds, private equity, bank funding.

PRS - Key End Use Sectors

  • Ownership of the UK PRS - virtually doubled by volume in the last decade, market mix.
  • Small-scale PRS landlords.
  • Leading institutional investors/developers in the PRS - key profiles and PRS development pipelines in Build to Rent sector.
  • Housing Associations in the PRS - key players, profiles and PRS development pipelines - schemes, volumes etc.
  • PBSA/Student Accommodation Operators in the PRS - key players, shares, profiles and PBSA development pipelines.

Key Stakeholders & Supply Chain in the PRS

  • Procurement in the PRS.
  • Key house-builders, contractors, consultants, FM companies in the private rented sector - PRS activities and development pipelines.
  • Build to Rent - leading/new players - Delancey/Qatari Diar, Moda Living, Grainger, Legal & General/PGGM, Essential Living, Greystar etc.

Report Summary

One of the most significant changes taking place in the UK residential market is the sustained growth in the private rented sector (PRS), which has been steadily growing over the last decade or so - nearly doubling since 2002 and now equating to around 19% of all households. This growth looks set to continue in the medium term as the number of households in PRS is expected to rise. One of the major drivers of PRS growth has been the lack of housing availability and supply, particularly for first-time buyers, exacerbated by rising house prices in London, the South-east and other major cities. Population growth, net migration (increasing number of young adults) and a mobile younger workforce have all contributed to increased demand for homes in the PRS. Growth has also been driven by the combination of rising house prices, stagnant wages and tighter mortgage lending, which have made home ownership increasingly unaffordable, despite historically low interest rates. Since 2012-13, private rental has been the second largest housing tenure in England behind owner occupation, and overtaking social housing, while home-ownership levels have fallen. In London, privately rented households currently account for around a third of the City's total homes.

In 2015, within the residential sector, PRS stock saw an increase of around 11% compared to the previous year. While the PRS is dominated by smaller private landlords many institutional and large corporate investors are showing increasing interest. The remaining PRS stock is held by mainstream commercial investors and companies, and other organisations including housing associations, local authorities, charities and student housing operators. The UK's PRS is going through a period of rapid change, with a recovering UK economy and increasing interest by both UK and overseas large institutional investors key elements in the recent expansion. The PRS is now becoming an important asset class in its own right and is set to show comparable growth to that seen in other 'alternative' property sectors such as budget hotels and student accommodation. However, PRS in the UK is still in a relative stage of early development compared to the US market, for example.

The planning system continues to present challenges to the viability and delivery of many PRS schemes. The process remains complex and the potential delays in being granted permission is often cited by residential developers as an issue hampering development. In addition, the limited availability of suitable sites for PRS developments has been identified as one of the major constraints to the development of a volume of stock sufficient to attract institutional investment in the PRS. PRS developers say they cannot compete in the open market in acquiring land against those acquiring for build to sell, which continues to be more lucrative. Build to Rent offers an alternative route to market for house-builders, and the potential for additional lines of finance. The private rented sector is forecast as the sub-sector most likely to see growth for many house-builders, and a number of large house-builders are now entering the sector.

Over the next few years, development in the PRS is expected to see a shift towards more purpose-built housing, predominantly high rise, with increasing financial backing from both domestic and foreign institutional investors. There is increasing scope for the Build-to-Rent/PRS to provide significant opportunities for investors, developers, house-builders and contractors. Large scale PRS or build-to-rent schemes can also offer opportunities for modular and offsite construction, and this could drive the growth of a larger scale off site manufacturing capability for housing in the UK. The PRS also has implications in terms of maintenance and refurbishment and opportunities for companies in the FM supply chain, as PRS and build-to-rent schemes require regular maintenance and upgrades at regular intervals. Going forward, with significant demand for residential portfolios in both London and across the UK and rental demand currently outweighing supply in the market, the future is likely to see more new homes built through the PRS via Build-to-Rent or institutional investment.


List of Report Contents

  1. Contents Listing
  2. 1. INTRODUCTION 7
  3. 2. SUMMARY AND FUTURE PROSPECTS 8
  4. 3. ECONOMIC ENVIRONMENT 13
  5. 3.1 GDP 13
  6. 3.2 INFLATION & INTEREST RATES 14
  7. 3.3 UNEMPLOYMENT 15
  8. 3.4 HOUSEHOLD CONSUMPTION 15
  9. 3.5 HOUSING & CONSTRUCTION 16
  10. 3.6 POPULATION PROFILE 17
  11. 3.7 CONCLUSIONS 17
  12. 4. PRIVATE RESIDENTIAL RENTAL MARKET IN THE UK 19
  13. 4.1 MARKET SCOPE AND DEFINITIONS 19
  14. 4.1.1 Overview of the UK Private Residential Rented Sector (PRS) 19
  15. 4.2 MARKET SIZE 21
  16. 4.2.1 Overall Size of Residential Rental Market 21
  17. 4.2.2 Future Growth of the UK Residential Rental Market 23
  18. 4.2.3 Analysis of PRS Stock by Property Type and Age 24
  19. 4.3 REGIONAL ANALYSIS OF UK RESIDENTIAL RENTAL MARKET 27
  20. 4.3.1 UK Residential Rental Market by Region 27
  21. 4.3.2 London Residential Rental Market 32
  22. 4.4 VALUE AND OWNERSHIP OF UK RESIDENTIAL RENTAL MARKET 34
  23. 4.4.1 Overall Value of UK Private Residential Rental Market 34
  24. 4.5 CONSTRUCTION OUTPUT IN THE RESIDENTIAL RENTAL MARKET 35
  25. 4.5.1 Total Construction Output to 2020 35
  26. 4.5.2 Construction Output in the Residential Sector 36
  27. 4.5.3 Private Rented Sector Development Pipeline 41
  28. 5. PRS - KEY ISSUES AND MARKET DRIVERS 49
  29. 5.1 HOUSING SUPPLY 49
  30. 5.1.1 UK House-Building Targets 49
  31. 5.1.2 UK Housing Starts and Completions 50
  32. 5.1.3 Housing and Planning Bill 53
  33. 5.1.4 Housing Zones 55
  34. 5.2 HOUSING AFFORDABILITY 58
  35. 5.2.1 House Prices and Affordability 58
  36. 5.2.2 Mortgage Availability 61
  37. 5.3 GOVERNMENT SUPPORT FOR PRS 63
  38. 5.3.1 Overview 63
  39. 5.3.2 Government Support and Funding for PRS 63
  40. 5.4 SOURCES OF FUNDING IN THE PRS MARKET 66
  41. 5.4.1 Public Sector PRS Funding 67
  42. 5.5 PLANNING ISSUES AND LAND AVAILABILITY 67
  43. 5.5.1 Planning 68
  44. 5.5.2 Land Availability 69
  45. 6. PRS - KEY END USE SECTORS 71
  46. 6.1 MARKET MIX 71
  47. 6.1.1 Ownership of the Private Residential Rental Market 71
  48. 6.2 SMALL-SCALE PRS LANDLORDS 72
  49. 6.3 INSTITUTIONAL INVESTORS/DEVELOPERS 72
  50. 6.3.1 Leading Institutional Investors in the PRS 73
  51. 6.4 HOUSING ASSOCIATIONS 80
  52. 6.4.1 Housing Association Profiles 83
  53. 6.5 PBSA SECTOR/STUDENT HOUSING 86
  54. 6.5.1 Size of the PBSA Market 87
  55. 6.5.2 Leading Commercial Operators in the PBSA Market 88
  56. 7. PRS - KEY STAKEHOLDERS/SUPPLY CHAIN OPERATORS 93
  57. 7.1 OVERVIEW 93
  58. 7.1.1 Procurement in the PRS 93
  59. 7.2 HOUSE-BUILDERS 94
  60. 7.3 CONTRACTORS AND CONSULTANTS 96
  61. 7.4 FM COMPANIES 98
  1. Tables & Charts
  2. CHART 1 GROWTH OF THE PRS SECTOR 2014-2025 (NO. DWELLINGS) (M) 8
  3. TABLE 2 GDP DATA - 2012-2015 - KEY CONSTITUENT ELEMENTS 13
  4. CHART 3 INTEREST RATES AND INFLATION (CPI) FROM 2000-2020 15
  5. CHART 4 PDI & SAVINGS RATIO AT CURRENT PRICES 2000-2020 16
  6. TABLE 5 DWELLING STOCK IN ENGLAND BY TENURE - 2004-05 TO 2014-15 ('000 DWELLINGS) 22
  7. CHART 6 PROJECTIONS FOR HOUSING TENURE (PRIVATE RENTED HOUSEHOLDS) 2014-2025 (M) 24
  8. CHART 7 UK PRIVATE RENTED SECTOR BY PROPERTY TYPE (%) 25
  9. CHART 8 AGE OF PRS STOCK IN ENGLAND (%) 26
  10. CHART 9 % OF NON-DECENT HOMES BY TENURE 2006-07 TO 2014-15 27
  11. TABLE 10 REGIONAL CONCENTRATION OF PRS STOCK BY CITY 28
  12. TABLE 11 TOP REGIONAL PRS MARKETS (POPULATION/HOUSING TENURE/HOUSE PRICES AND PRS RENTS) 29
  13. TABLE 12 LONDON - CONCENTRATION OF PRS STOCK BY BOROUGH 33
  14. CHART 13 TOTAL VALUE OF PRS STOCK IN THE UK - 2007-2016 (£BN) 34
  15. CHART 14 VALUE OF PRS STOCK IN THE UK BY REGION 2015 (£BN) AND (%) 35
  16. CHART 15 VALUE OF TOTAL CONSTRUCTION OUTPUT 2011-2020 BY VALUE (£BN AT CURRENT PRICES) 36
  17. TABLE 16 VALUE OF TOTAL RESIDENTIAL CONSTRUCTION OUTPUT 2011-2020 (PUBLIC AND PRIVATE) (NEW BUILD AND RMI) BY VALUE (£BN AT CURRENT PRICES) 37
  18. TABLE 17 PRIVATE RESIDENTIAL CONSTRUCTION OUTPUT 2011-2020 (NEW BUILD AND RMI) BY VALUE (£M AT CURRENT PRICES) 39
  19. CHART 18 PRIVATE RESIDENTIAL RMI OUTPUT 2011-2020 BY VALUE (£M AT CURRENT PRICES) 41
  20. CHART 19 UK BUILD-TO-RENT DEVELOPMENT PIPELINE 2016 (UNITS COMPLETED, UNDER CONSTRUCTION AND IN PLANNING) - UK, LONDON AND REGIONS 42
  21. TABLE 20 REGIONAL PRS/BUILD TO RENT PIPELINE SCHEMES - SCHEME DETAILS DEVELOPERS, DWELLING VOLUMES 44
  22. CHART 21 LONDON BUILD-TO-RENT DEVELOPMENT PIPELINE 2016 (UNITS COMPLETED, UNDER CONSTRUCTION AND IN PLANNING) 45
  23. CHART 22 LONDON BUILD-TO-RENT DEVELOPMENT PIPELINE - MIX BY BOROUGH/AREA 46
  24. TABLE 23 INNER/OUTER LONDON PRS/BUILD TO RENT PIPELINE SCHEMES - DETAILS, DEVELOPERS, DWELLING VOLUMES 48
  25. CHART 24 NEW HOUSING STARTS IN THE UK 2011-2020 BY VOLUME OF DWELLINGS 51
  26. CHART 25 NEW HOUSING COMPLETIONS IN THE UK 2011-2020 BY VOLUME OF DWELLINGS 52
  27. TABLE 26 HOUSING ZONES IN THE UK BY REGION - EST. NO. OF HOMES, FUNDING 56
  28. TABLE 27 LONDON HOUSING ZONES BY BOROUGH - EST. NO. OF HOMES BY ZONE 57
  29. TABLE 28 AFFORDABILITY FACTORS - SIMPLE AVERAGE PRICE, MORTGAGE ADVANCE AND INCOME (£M) 2005 - 2015 59
  30. CHART 29 RENTAL GROWTH VS. HOUSE PRICE GROWTH (% CHANGE) 2005 - 2016 61
  31. CHART 30 VOLUME AND VALUE OF BUY-TO-LET MORTGAGE ADVANCES 2006 - 2015 (£BN) 62
  32. TABLE 31 BUILD TO RENT FUND - CONTRACTS SIGNED UNDER ROUNDS 1 & 2 PROVIDER, NO. OF PRS HOMES, FUNDING 64
  33. CHART 32 ESTIMATED OWNERSHIP OF PRS STOCK IN THE UK TYPE OF OWNER - 2015 (£BN) AND (%) 71
  34. TABLE 33 LEADING INVESTORS/DEVELOPERS/OPERATORS IN THE PRS/BUILD-TO-RENT SECTOR - ESTIMATED INVESTMENT, KEY SCHEMES, PRS UNITS IN DEVELOPMENT PIPELINES 74
  35. CHART 34 FORWARD PIPELINE OF PRS UNITS BY KEY OPERATOR 80
  36. TABLE 35 LEADING HOUSING ASSOCIATIONS IN THE PRS/BUILD-TO-RENT SECTOR KEY PLAYERS, INVESTMENTS, SCHEMES, PRS UNITS IN PIPELINE 82
  37. TABLE 36 MARKET SHARES OF LEADING COMMERCIAL PBSA OPERATORS 2015-16 - NO. OF BEDS, DEVELOPMENT PIPELINES 90

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